Stationery--It’s Not Standing Still : Warehouse ‘Superstores’ Launch Fierce Competition for the Once-Staid Office Supplies Market

Sometimes, when business is slow, Dee Erickson, manager of Wolcotts Commercial Stationers in downtown Los Angeles, stands outside the store looking pensive.

Erickson says he blames the dearth of customers on the lack of nearby parking spaces, but, when pressed, he admits that a nearby discount office supply superstore is waging a quiet--but fierce--price war against him.

“The warehouses are making inroads,” said Erickson, a 42-year veteran of the stationery business. “They are definitely going to hurt some of the dealers.” The players--big and small--are all competing for a piece of the $90-billion to $100-billion-a-year U.S. office supply market, according to industry experts. And it is already evident that many companies will not survive the fray.

The dramatic change in the office supply industry began about three years ago when two former supermarket executives opened a store called Staples in Brighton, Mass. Since then, venture capitalists have invested about $200 million in 16 office supply superstore chains across the country. Office Club, BizMart, WORKplace, Office America and Office Depot are only a few of the new office products superstores, as they are called.

The no-frills superstores average about 30,000 square feet and stock about 10,000 different items. They claim to offer savings of up to 50% on everything from telephones to stick-on mailing labels.

They can give the discounts because they buy enormous quantities directly from the manufacturers. Most of the chain stores stay open long hours, seven days a week, unlike the traditional stationer, who keeps regular business hours, Monday through Friday.

The superstores’ strategy has been to target small and medium-size businesses eager to save money on office products and equipment. Most superstores can outfit a business from scratch, providing everything from the coffee maker to the personal computer system hardware and software.

“The superstores have totally upset pricing in the industry,” said Jack Miller, president of Chicago-based Quill Corp., a $250-million-a-year, mail-order office products company. “Everything is up for grabs.”

However, Miller feels less threatened by the superstores because he believes that his mail-order customers will remain loyal. Mail-order companies accounted for 5.3% of the industry’s 1987 sales.

Miller predicts that if smaller dealers find themselves unable to compete on price, they may be forced to go into what he calls “niche marketing.” For example, one company may begin to specialize in serving the office products needs of hospitals or medical buildings, while another may just focus on selling filing systems.

Offer Personal Service

Most industry leaders are taking a wait-and-see attitude as the superstore chains open their doors across the country. “Anytime there are new entrants in the marketplace, some people will be affected,” said Jack Bodeewes, president of the 9,000-member National Office Products Assn. “I’m not sure which segment of the industry will be hurt the most.”

Bodeewes, who owns Business Products & Services in El Paso, suggests that the smaller retailers begin fighting the competition by providing what they are best at--more personal service.

“I’ve heard about people with stationery stores located near the Price Club who had to close down,” said Raj Patel, owner of Nelson’s Stationery on Colorado Boulevard in Glendale. “It is kind of scary.”

Patel, who bought the 45-year-old business five years ago, said he can give customers some discounts on big purchases, but he certainly cannot compete with the superstores’ prices.

“But you don’t get the personal attention at those stores,” Patel said. “I think that’s the only thing a small stationery store can offer.”

The superstores have already taken a toll on Sacramento’s office supply retailers, according to a report in the Sacramento Business Journal. In November, the Journal reported that three longtime Sacramento stationery stores filed for bankruptcy protection a few months after the first office supply superstores moved into town.

The impact on traditional stationers in Los Angeles will probably take longer to surface.

For decades, the office supply industry relied on a stable distribution system that started with the manufacturer and ended with the dealer but included a wholesaler or two in between. By cutting out the wholesalers, and by keeping their overhead low, the superstores can offer surprisingly large discounts.

For example, the same roll of 3M Magic transparent tape recently on sale at Wolcotts for $1.49 was selling for 99 cents at the downtown Office Club. A Swingline 747 model stapler selling for $22.95 at Wolcotts could be had for $11.99 at the Office Club. And a staple remover on sale for 79 cents at Wolcotts sells for 39 cents at the Office Club.

“The problem is that the public perception is that the independent dealer is gouging them, and that isn’t true,” Wolcotts’ Erickson said.

No-Frills Setting

Erickson does not deny that products cost less at superstores, but he points to the advantages of dealing with smaller retailers, including free delivery. And, he said, many small businesses are penalized by being forced to buy hundreds of pencils or 1,000 file folders at a time from the superstores when they do not really need that volume.

Although service, delivery and credit are still the most attractive reasons to buy from a small dealer, many warehouse-format stores now offer these services for additional, modest fees.

The office products superstores patterned themselves after general retail superstores such as the Home Club and Price Club. They all offer a wide selection of products in a no-frills, warehouse setting.

George Orban, president of WORKplace, based in St. Petersburg, Fla., was a pioneer in the discount business and said he finds opportunities by looking for products with inefficient distribution channels. Earlier, he was a founder of Ross Stores Corp., a discount clothing store chain, and of Egghead Software.

WORKplace, with stores in Montebello and City of Industry, plans to open 20 stores in the Los Angeles area by 1990, according to Orban.

“I think there will always be room for the conveniently located small store, because we won’t be putting one of these (superstores) on every corner,” he said in a recent interview.

WORKplace stores differ a bit from the competition because they emphasize computers and software. Each WORKplace store features a full Egghead software store inside.

Todd Krasnow, vice president of marketing for Staples, said there probably won’t be 16 different chains of superstores, but “there will be room for a few.”

“It’s amazing how quickly this is happening,” Krasnow said, adding that Staples, with 23 stores on the East Coast, expects to gross $120 million this year.

Mark Begelman, president of Office Club, based in Concord, Calif., said the office products world was ripe for change because it was “a gigantic industry with antiquated channels of distribution.”

California alone offers a $9-billion market for office products, he added.

So far, there are 16 Office Clubs in California, Oregon, Washington and Colorado. A basic membership costs $10 a year. Non-members pay 10% more for products than members do. For $50 a year, members can order by telephone, have merchandise delivered and make credit purchases.

The new downtown Los Angeles Office Club, which opened in the first week of January, already boasts 3,500 members. The manager said customers love the free parking and easy access off Temple Street.

“We are trying to give the smallest business person the buying power of IBM,” Begelman said.

Meanwhile, small stationery store owners and managers will watch what happens to the big guys with interest. Wolcotts’ Erickson predicts that “sooner or later some of them are going to go down the tubes.”

But, he doesn’t deny that he could buy things at a lower cost from them.

“My own wife buys at a warehouse store,” he said with a sigh.